Update on 440 Oakland Avenue Note Sale John Ward July 20, 2016

Property Background Purchased by EMWD in July 1988 and used until relocation to Perris in June 1995 Declared Surplus – May 1998 Actively Marketed for Five Years Sold to JDP Development for $700,000 Grant Deed and Deed of Trust – Recorded November 2003 in the name of Juanita Properties, LLC

Financing Background & Note Modifications $250,000 Cash Down Payment $450,000 Note Extended to Juanita Properties, LLC – November 2003 Secured by Deed of Trust in the first position Quarterly Interest Payments Principal Balance Initially Due – November 2005

Modifications to Note Six Note Modifications November 2005 December 2007 June 2009 March 2013 Also incorporated requirements to cure property tax deficiencies, and restated insurance requirements January 2015 Also incorporated specific requirements to maintain and preserve property from disrepair All Modifications Extended Maturity Dates and some Adjusted Interest Rates

Status Interest Payments One Quarterly Payment of $6,468.75 due on May 15, 2016 has not been paid Insurance Coverage and Property Taxes – Current Property Maintenance/Site Condition Problems Persist Weeds Debris Fencing Security Roof in Disrepair Electrical Wiring Stripped Balloon Payment of $450,000 due November 14, 2016

Sale of Note Secured by Deed of Trust Risk Analysis Undertaken at Direction of the Board explored EMWD’s Options: Continue to Attempt to Enforce Property Maintenance Provisions Explore a Sale of the Note Explore Costs Associated with Foreclosure and Property Risk Mitigation; Pursue Sale of Property Board Directed Staff to Pursue a Sale of the Note as the Best Economic Alternative, while Mitigating Risks Note Marketed for 22 Calendar Days to 8 Note Buyers and through Three Public Websites Seven Offers Received - One Unsolicited Offer Received Highest Offer Received from JDP Development, Inc. for $310,000 JDP Development, Inc. is owned by the same individual as Juanita Properties LLC (current property owner)

Board Action and Subsequent Events April 27, 2016: Board Authorized Sale of Note to JDP Development Directed staff to close escrow within thirty days (by May 27, 2016) If escrow did not close, Board authorized General Manager to accept the next highest bid, subject to the concurrence of the Board Treasurer May 25, 2016: Deadline for JDP Development to Fund Escrow Failed to fund escrow account Did not return any phone calls from the District seeking status until May 26, 2016. Advised that JDP Development needed more time to obtain funding. May 27, 2016: District Cancelled Escrow for Non-Performance under Purchase and Sale Agreement Current Alternatives: 1. Sell the Note to the next responsible bidder using the authority previously provided to the General Manager, with the concurrence of the Board Treasurer; or 2. Attempt to bring owner into compliance with Sixth Note Modification; if non-performance continues, foreclose on the Note starting in November 2016

Alternatives Sell the Note to Next Highest Responsible Bidder Commence Foreclosure, Clean- up Property, Sell Property Commence Foreclosure, Demolish Existing Building, Sell Property Commence Foreclosure, Demolish Existing Building, Clear Entire Site, Sell Property   Sales Price: $ 140,000 Costs: Legal and Title <$ 25,000> Site cleanup and security <$ 75,000> Building repairs <$ 100,000> Contingency (10%) <$ 20,000> Legal and Title <$ 25,000> Building demolition <$ 375,000> and clearing Contingency (10%)<$ 40,000> Legal and Title <$ 25,000> Pavement, concrete, and <$ 162,000> tree removal Contingency (10%) <$ 54,350> Potential Sale * $ 275,000 Potential Sale * $ 275,000 Potential Sale ** $ 543,500 Net Recovery $ 140,000 Net Recovery $ 55,000 Net Recovery <$ 165,000> Net Recovery <$ 72,850> *Based on Broker’s Opinion of Value ** Based on Appraisal; assumes full site clearing. Note: Property would need to be offered under surplus requirements to other public agencies, which under certain conditions, could result in a sale at less than market value.

Recommendation Based upon economic analysis, and to mitigate risks moving forward: Continue under Board’s previously approved action to authorize the General Manager to accept the next highest offer on the Note, subject to the concurrence of the Board Treasurer

Contact Information John Ward Director of Engineering Services (951) 928-3777 Ext. 4453 Email: wardj@emwd.org